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Many observers in the banking sector see the security block as a smokescreen to mask what the Italian government really wants: a much bigger role for Monte dei Paschi di Siena...
Brussels will not allow Giorgia Meloni's government to have the final say in shaping a new banking landscape in Italy.
The European Commission warned Rome on Monday that it was violating Union rules by citing national security or "golden power" to effectively block UniCredit's bid for rival Banco BPM.
In a statement describing the letter of objection to the Italian government, the European Commission complained that Rome had not provided "sufficient justification" for imposing such stringent conditions on the merger that it risked failure.
The warning letter from Brussels puts the EU and Italy on a collision course in a highly sensitive sector.
The Commission, which has exclusive power to decide on mergers under EU competition rules, has examined the UniCredit-BPM deal and given its approval with limited conditions to curb excessive market concentration. The Italian government says the deal poses a security risk, in part because UniCredit still has operations in Russia.
However, many observers in the banking sector see the security block as a smokescreen to mask what the Italian government really wants: a much bigger role for Monte dei Paschi di Siena (MPS.)
MPS was rescued in 2017, but is seen as a national favorite bank that Rome would like to turn into a "third pole" in the banking sector after UniCredit and Intesa Sanpaolo.
Without convincing counterarguments from Rome, the European Commission could overturn Rome's decision, as it has done in the past with Hungary and Spain over agreements in the insurance and energy sectors, when they also played the national security card.
In a separate but complementary investigation, officials from the Commission's financial services directorate are also investigating whether the same Rome decision is infringing internal market rules.
Italy is unlikely to back down easily, as the undermining of the UniCredit-BPM deal is just one part of a larger reorganization aimed at finding a greater role for MPS.
The government has repeatedly tried to free MPS from the hands of the state after it was rescued from the crisis and last year sold a large portion of its shares to BPM.
However, the government's aspirations for MPS and BPM to merge to form a "third pole" were dashed when UniCredit was incorporated into BPM.
A first-instance administrative court ruling on Saturday on UniCredit's appeal further escalates tensions with the EU executive, after it upheld two of the four conditions set by the government, largely confirming the national security argument.
Despite returning two of the conditions to the government for review, the decision “has completely confirmed the government’s reasoning,” said Michele Carpagnano, a partner at Dentons and head of the research organization Osservatorio Golden Power.
The decision also says Italy's conditions are in line with EU rules, in contrast to Monday's letter, the lawyer noted.
If UniCredit still cannot accept the terms, the fate of the deal will depend on whether it is able to secure a second extension from the Italian financial regulator, Consob, before the offer expires on July 23.
A decision on how to restore the terms of the agreement will ultimately be made by Meloni's cabinet.
However, Carpagnano noted that the European Commission and potentially the Court of Justice would have more influence than an Italian regional court in determining merger policy.
There are broader concerns in Brussels and Rome about the Italian government's perceived interference in the banking sector.
Months after the hoped-for collaboration between BPM and MPS fell through, the Tuscan lender made a surprise bid for venerable Milanese investment bank Mediobanca. A merger between the two was seen as an unlikely match and the European Commission has since been asked to examine the government's role in the bid, given that it remains the Tuscan lender's largest shareholder.
Both Mediobanca and Five Star MEP Gaetano Pedullà have called on the Commission to investigate this action. /Pamphlet adapted from Politico/
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